Abstract
The Druk-Dungkar Model is a dynamic, 55-generation overlapping generations (OLG) general equilibrium model developed to analyze fiscal policy, demographic changes, and external sector dynamics in Bhutan. The model is conceptually grounded in the life cycle framework of Auerbach and Kotlikoff (1987) and closely follows the structure of the Australian Treasury's OLGA model, while incorporating features relevant to small, government-led, and externally constrained economies. The model consists of 55 overlapping cohorts representing individuals aged 21 to 75, heterogeneous across nine employment sectors and income profiles. Households make forward-looking decisions on consumption and saving over their lifecycle, while firms operate under competitive conditions using a Cobb-Douglas production technology. A detailed fiscal block captures labor, consumption, and business taxes, government expenditure composition, and public debt dynamics. The external sector reflects Bhutan's pegged exchange rate regime, limited capital mobility, and reliance on hydropower exports and external financing. The model is calibrated to Bhutanese macroeconomic data and solved using a Gauss-Seidel iterative method to obtain both steady-state and transition dynamics.
Key Features
For technical queries regarding this model, please contact the Department of Macro-Fiscal and Development Finance,
Ministry of Finance, Royal Government of Bhutan.
mfpd@mof.gov.bt